The tax increase reflects the expiration of the Bush tax cuts, and the end of the cut in payroll taxes, as well as no adjustment to the Alternate Minimum Tax.

In addition, taxes on dividends and capital gains will rise, as will the tax on gifts and estates. All in all, some $500 billion in purchasing power will be pulled out of the economy.

As for spending, the act mandates that both defense and non-defense outlays will be subject to an annual sequester that in 2013 alone will amount to a cut of at least $100 billion.

The purpose of these draconian measures is to reduce Washington’s budget deficit and ultimately the size of its debt relative to the size of the economy. The pols themselves passed this act in order to give them the backbone needed to take the hard steps necessary to rein in the deficit.

In the cold light of day, they soon recognized that unless they did something, the effects of the act would amount to dragging the economy over what came to be known as a fiscal cliff.

Needless to say, the pols on both sides of the aisle and both ends of Pennsylvania Avenue set out to try to avoid this outcome. This has led to the theatrics you hear every day, as one side stakes out a position and the other side tries to counter it, threatening Armageddon if nothing is worked out.

But unless the pols agree to extend the act’s deadline or repeal it altogether, going over the cliff (or any agreement made to avert it) will not reduce the deficit for very long.

The reasoning is simple: Taking as much as 4% out of our gross domestic product will push the economy back into recession. And when the economy tumbles, the government takes in less tax revenues and has to spend more on social programs like unemployment insurance, food stamps, welfare and the like.

Best of 2012: The Year in Politics

(10:18)

Take a look back at a historic year in politics, including how Mitt Romney won the GOP's nomination, the Supreme Court ruling on Obamacare, and how the president overcame a tough economy to decisively win re-election.

Now you don’t have to be a rocket scientist to conclude that less revenues and more spending increases the deficit — not the other way around.

Given today’s anemic growth rate, the only sure-fire way to cut the deficit is to extend the deadline or repeal the act. If not, we will wind up with higher unemployment and no growth — kind of like the austerity Europe finds itself in.

At any rate, all this concern about debt overlooks the fact that it’s been around since we’ve been a country. Except for a period during 1835-36, the United States has carried a debt since the Constitution went into effect in 1789.

As for theory that reining in the government’s debt will inspire business to hire and invest, anyone in the real world will tell you that this is a canard.

Business won’t hire until new workers add more to the bottom line than they cost. In other words, business wants to see strong markets, and you can’t get strong markets by taking buying power out of the economy.

Furthermore, whose belt do you think the government will tighten to try to live within its means? If the past is any guide, no one wants his or her belt to be tightened. It has to be the other guy’s belt — and guess what the other guy wants.

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